The theft at the heart of the system: how wealth is really created

Ben Hillier

29 April 2019

The election campaign has been dominated by the question of taxation. And no one is talking much sense.

It’s not just that the arguments are made difficult by the terminology – “excess franking credits”, “negative gearing” and so on. Nor is it that the debates aren’t important. It matters that the Liberals want to cut income taxes for the very wealthy by tens of billions of dollars and starve social services of funding.

The problem is how discussions about tax invariably get framed as a discussion about who contributes most and least in society.

For example, you might have read about Tax Office statistics showing that the top 10 percent of taxpayers contribute nearly 50 percent of all income tax revenue, and that the top 1 percent contribute about 17 percent. And while you’ll hear about the many tax dodging companies, you might also read that ten contribute about 45 percent of all corporate tax.

Those at the top use these figures to paint a particular picture of how society works. Those with the most wealth, they say, carry the burden of providing for everyone else. People might complain about inequality and pittance payments for social security, but it’s the big corporations and those with the highest incomes we have to thank for there being any money at all for government services.

And it’s not fair, they say, that they get penalised by high taxes to subsidise the lives of those who don’t work. More than being unfair, it’s counterproductive. Their logic is tortuous. Rich people pay the most taxes, but higher taxes result in fewer rich people. Fewer rich people means less money for the government to collect in taxes, which results in fewer or poorer government services. Raising taxes to make up the shortfall would only compound the problem. So what to do? Well, lower taxes to help create more rich people so fewer people need government support.

There’s one problem with this fantastical account of who is and who isn’t doing the heavy lifting in society: the tax system distributes wealth, but it doesn’t tell us anything about who created the wealth to begin with. Yet this is the most important question to answer if you want to understand how capitalism works.

For example, if someone told you they have to give away half of their dinner every night, you might immediately think it sounds unfair. But what if you heard that their dinner was large enough to feed 20 people and that they didn’t have to prepare or cook it in the first place because they have a servant who does all of that plus the shopping and the cleaning? Now you might look at the situation in a different light – here’s someone who gets a meal for ten, every night, without lifting a finger. And they’re complaining that they don’t get more.

Our economy is run by people like this – those who receive the benefits of everyone else’s work, but who complain that they are expected to contribute a little themselves. It’s the class of owners and managers – a minority who own or control the vast majority of the productive apparatus required to produce the things we all need: the telecommunications infrastructure, the agricultural land, the machinery, the office blocks, the factories, the mines and so on.

How do they get away with playing the victim when they have so much wealth? Through capitalism’s inbuilt sleight of hand accounting. When business owners hire workers to create the useful products – to perform the labour – it looks like a fair exchange. The boss offers money in exchange for work of a certain type and duration. The worker offers their capacity to labour. They freely make a deal, “a fair day’s work for a fair day’s pay”.

When the firm’s products are sold, revenue comes back to the business to pay for the rent, bills, raw materials and so on. But every firm requires that its revenue will be greater than the money originally outlaid. This extra money goes to executives, to shareholders, to pay taxes and interest on loans, and part of it is retained for expanding operations.

But where does the difference come from? How do businesses continue to end up with more than they spend? How does the wealth keep growing in the hands of the rich? They have their own explanations, often involving their own smarts, talent and hard work. The reality is simpler and altogether nefarious. Workers create additional “surplus value” during the production process, which they are not paid for.

A worker might get paid for eight hours’ work, but the value created in that eight hours surpasses the value of the wage. That’s capitalism’s great “secret” – the mechanism through which the accumulation of wealth occurs. The “prime mover” of value creation is exploitation at the point of production. This is hidden beneath that fiction of “a fair day’s pay”.

This is what Marxists talk about when we use the word “exploitation”. It is the process through which workers are systematically robbed of the full value of their labour.

It is impossible to say precisely how much value above their wages workers lose to the capitalist class. But the Bureau of Statistics gives us raw industry figures. For example, Australian manufacturing last year recorded a pre-tax operating profit of $24.6 billion – i.e. once all wages and all other business costs were paid, this is what was left over. With a workforce of 830,000, that worked out to about $30,000 per worker per year in profits. In the mining industry, profit per worker was nearly $215,000.

Across the whole economy, the figure is about $33,000 per worker per year, for a total of $360 billion in pre-tax industry profits. Imagine what could be done with that if it were put to work securing human need.

Any income or wealth taxes that the rich pay simply wrest back some of what they already received for someone else’s work. Yet they appeal to “fairness” when complaining that they pay too much. In reality, they pay not nearly enough. Imagine someone coming to your house and stealing everything from your kitchen but complaining when they are ordered to give back 30 percent of it? (The company tax rate is 30 percent – big business says that’s too much.)

Real fairness demands that workers should not pay income tax or any other taxes. They have already lost out big time before tax time. Businesses and their owners who organise the exploitation of workers should pay much more tax to fund the state services that workers rely on. Indeed, real fairness demands that the entire system of profit taking be replaced with an economy run for human need.